USPS’s 12 Years of Financial Woe

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.

November 29, 2018 - 16:57 — Leslie Paige

On November 14, 2018, the United States Postal Service (USPS) announced that, for the 12th year running, it lost money. While this annual revelation has become something of a dog bites man story, the new, and more alarming news was that the $3.9 billion loss will outstrip its FY 2017 losses, which were $2.7 billion, and its net “controllable” income went from a $610 million profit to a $814 million loss in the fiscal year that ended Sept. 30, 2018 (which hasn’t happened since 2013). First-class mail volume fell by roughly 2.1 billion pieces, or 3.6 percent.

USPS executives point to the termination of the emergency rate hike in 2016, and a nearly $700 million jump in its compensation costs as additional culprits contributing to the losses. And while postal management points to parcel delivery as an ongoing revenue generator, the decline in mail volume seems to be accelerating and the growth in `parcel delivery is slowing (as had been predicted). The USPS also blamed the losses on increased transportation, labor and workers compensation costs, stating that “[E]xpenses for workers compensation and retiree health benefits increased by $801 million and $221 million, respectively, largely attributable to changes in actuarially determined expenses outside of management's control.”

Postmaster General and CEO Megan J. Brennan said in her official statement that USPS management is “aggressively managing” the business and continuing to focus on serving USPS customers and communities. “However,” she added, “the flawed business model imposed by law continues to be the root cause of our financial instability. We are seeking reforms that would allow the organization to reduce costs, grow revenue, compete more effectively, and function with greater flexibility to adapt to the marketplace and to invest in our future.”

The impulse to lay all its woes at Congress’s door is perfectly rational, since current law ties postal executives’ hands in significant ways and postal reform initiatives, even the weak legislative reform tea that has been brewed in committee over the last several sessions, languishes year after year.

It is debatable, however, whether current USPS management has really pulled out all the stops to manage costs.

For example, on January 5, 2015, USPS revised its first-class mail delivery standards, eliminating single-piece overnight delivery, and moving other mail classes from a 2-day to a 3-day standard. The move was meant to give USPS more operational and transportation relief and produce $1.6 billion in savings between FYs 2016 and 2017. However, a USPS OIG audit report released on October 15, 2018 detailed postal management’s failure to realize projected savings after loosening the delivery standards, termed the Operational Window Change (OWC).

According to the OIG, its auditors were only able to verify “about $73.43 million of the FY 2016 savings and $17.22 million of the FY 2017 savings – about $90.65 million, or 5.6 percent of the projected savings for both years.” Auditors also found that mail processing productivity dropped by 14 percent during that two-year timeframe.

Postal management had projected that the changes in its network operations would save more than $268 million in transportation costs; instead overall transportation costs jumped by more than $1 billion, or 15.4 percent.

In the end, the OIG concluded that “it is unlikely the Postal Service will ever achieve the projected annual $805.5 million Operational Window Change (OWC) savings. The Postal Service did not develop an annual tracking methodology for each OWC savings category and did not develop a sensitivity analysis to account for changes in mail volume, changing labor cost, and transportation costs when they projected the OWC annual savings.”

So, service standards for first class mailers were deliberately degraded to achieve savings that not only never materialized but which USPS management was never capable of tracking in the first place.

All of which is to point out that while postal reform can only happen when Congress decides to take action, claims by USPS executives that they have searched every nook and cranny of postal operations to tighten efficiency and squeeze out every drop of savings must be viewed with a healthy dose of skepticism. USPS management and many of its labor unions are quick to point out that taxpayers do not fund USPS, but they conveniently avoid discussing the $15 billion debt the USPS owes to the U.S. Treasury, and the burgeoning $100 billion pension and healthcare liabilities that will surely fall on taxpayers should Congress fail to produce transformative reforms for the USPS in the very near future.